Is your estate plan tax-efficient?

If you’ve created your estate plan, you deserve a pat on the back. The majority of adults in the United States don’t even have a will, let alone any of the other critical legal documents.

But are you maximizing the benefits that estate planning can provide?

What is the purpose of an estate plan?

The primary purpose of estate planning is to outline how you want your assets managed or distributed in the event of incapacitation or death. It minimizes legal complications and conflicts among family members. A comprehensive estate plan should provide you and your loved ones with peace of mind.

While everyone’s estate plan will be different, the most basic components include:

• A will
• Named guardian for minor children
• Power of attorney
• Advanced Directives

However, to get the most out of your estate plan, you will want to ensure that it’s also tax efficient, and two great ways to accomplish that are gifting and trust creation. In 2025, the estate tax exemption is $13.99 million per person. In 2026, it’s supposed to drop to $7 million. Any estate above the exemption level will need to pay the estate tax before the distribution of the assets, leaving less for your heirs.

Gifting is a straightforward way to reduce the amount of your taxable estate. The IRS allows you to give $19,000 ($38,000 for couples) annually to as many people as you wish, with a lifetime limit of $13.99 million. Gifting during your lifetime assures you that your wealth will be passed on intact while also lowering the size of your taxable estate.

Trusts are also versatile tools for achieving tax efficiency. But it’s important to have the right type of trust. While assets placed in a revocable trust can bypass probate, they are still considered part of the taxable estate. An irrevocable trust completely removes assets from your control, thus lowering your estate’s value. 

The combination of gifting and trusts can create a well-rounded estate plan, but you need to consider the amount of control you wish to maintain over your assets. That is why it’s crucial to discuss your needs with someone who can help you create an estate plan that is both tax-efficient and meets your goals.